Consider a constant cost industry that is perfectly competitive and in which the demand curve is downward sloping. Further, starting from a long-run equilibrium, firms experience an improvement in technology that lowers the marginal cost and average total cost to the same extent. In the long run, we expect: [Tick all that apply]
Question
Consider a constant cost industry that is perfectly competitive and in which the demand curve is downward sloping. Further, starting from a long-run equilibrium, firms experience an improvement in technology that lowers the marginal cost and average total cost to the same extent. In the long run, we expect: [Tick all that apply]
Solution
-
The improvement in technology will lead to a decrease in the marginal cost and average total cost for each firm. This means that firms can now produce the same output at a lower cost.
-
In the short run, this will lead to an increase in profits for each firm as they can now sell their output at the same price but at a lower cost.
-
However, in a perfectly competitive market, these above-normal profits will attract new firms into the industry. This will increase the supply of the product in the market.
-
The increase in supply will cause the market price to fall. This will continue until the price falls to the point where it equals the new, lower average total cost. At this point, firms will be making normal profits again.
-
In the long run, we can expect the number of firms in the industry to increase, the market price to decrease, and firms to be making normal profits.
-
The improvement in technology does not change the downward slope of the demand curve. The demand curve remains downward sloping, indicating that as price decreases, quantity demanded increases.
-
Therefore, in the long run, we can expect the quantity of the product produced and consumed in the market to increase.
So, in conclusion, in the long run, we expect an increase in the number of firms, a decrease in market price, normal profits for firms, and an increase in the quantity produced and consumed.
Similar Questions
Consider a perfectly competitive market with identical firms and a downward-sloping market demand curve. Assume that the market is initially in a long-run (and short-run) equilibrium. Suppose the variable costs of production increase, which shifts up the marginal cost and average total cost curves to the same extent. In the long run, we would expect the price to _________ and the number of firms in the market to ___________.Group of answer choicesincrease; decreaseincrease; increasedecrease; decreasedecrease; increaseNone of the above
Consider a constant-cost industry that is perfectly competitive and in which the demand curve is downward sloping. Further, starting from a long run equilibrium assume that firms experience an improvement in technology that lowers average total cost but does not change marginal cost. In the long run, we would expect:Group of answer choicesConsumer surplus to increase and producer surplus to remain unchanged.Consumer surplus to decrease and producer surplus to remain unchanged.Producer surplus to increase and consumer surplus to remain unchanged.Producer surplus to decrease and consumer surplus to remain unchanged.More information is required to answer this question.
In the long run in a competitive industry, if demand increases and the industry is a decreasing-cost industry, then the industry supply curve is
Assume that all firms in a competitive industry have cost curves given by the following: TC = 128 +8q +2q2. Further, the market demand curve is given by: p = 72-2Q. In the long run market equilibrium, each firm that remains in the market will produce:
If an industry's long-run supply curve is upward sloping, the industry is characterized by:Question 50Select one:a.increasing cost.b.decreasing cost.c.constant cost.d.high overhead cost.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.